Mutual Fund News

ETF Buyer's Guide goes global

Canadian investors have long and justifiably been criticized for not having enough exposure to global stock markets.

It turns out the exchange-traded fund companies are guilty of exactly the same thing. The third instalment of The Globe and Mail ETF Buyer's Guide was initially meant to cover international funds, or those covering developed stock markets outside North America. But the small number of funds in this category left room for more.

As a result, you'll find emerging markets covered here, as well as global dividend funds. Country-specific funds were left out on the basis that they're more for speculation and not a core investment.

And now for a quick word about currency hedging, which cuts the distortion in returns caused by our dollar's ups and downs versus global currencies. Hedging adds to your investing costs in some cases, and it can undermine returns a bit by causing what's known as tracking error. It's useful to have hedging when the Canadian dollar is rising, but you'll find it a drag on returns when our currency is falling.

The ETF Buyer's Guide has already covered Canadian equity ETFs (tgam.ca/DwYF) and U.S. equity ETFs (tgam.ca/Dy01). To come in the weeks ahead are bond ETFs and Canadian dividend and diversified income ETFs. Here are explanations of some of the terms you'll find in the guide below.

Managementexpenseratio (MER): The main cost of owning an ETF on an ongoing basis; as with virtually all funds, published returns are shown on an after-fee basis.

Trading expenseratio (TER): The cost of trading commission racked up by the managers of an ETF as they shuffle the portfolio to keep it in line with a target index; add the TER to the MER for a fuller picture of a fund's cost.

Average 30-day daily trading volume: Trading of less than 10,000 shares per day on average tells you an ETF isn't generating much interest from investors.

Top-three country and sector weightings: International ETFs vary a fair bit in terms of which countries and sectors they emphasize.

For more visit tgam.ca/carrick-etf3

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INTERNATIONAL/EMERGING MARKETS/GLOBAL DIVIDEND FUNDS

Recent

Div

Avg dly

Div

Top three

Top three

Top three

to Dec. 30

Assets

MER

TER

Price

Yld

trd vol

Distr

country

sector

stock

1-yr

3-yr

5-yr

Launch

Fund

Sym

($-mil)

(%)

(%)

($)

(%)

30 dys

Freq

Wghtngs

Wghtngs

Hldngs

% rtn

% rtn

% rtn

Date

BMO MSCI EAFE Hedged to

ZDM

747.2

0.52

0.18

17.98

2.3

18,713

QTRLY

Japan

Financials

iShrs MSCI EAFE ETF

27

9

n/a

20/10/2009

CAD Index ETF

U.K.

Industrials

Nestlé

Switz.

Cons. Discr.

HSBC Holdings

Comments: Tracks the MSCI Europe Australasia Far East Index, the most widely followed benchmark for international investing. Fees a little higher than the iShares competition, but seems to hug the index better.

BMO MSCI Emerging Markets

ZEM

81.5

0.65

0.11

15.38

2.2

8,936

ANN.

China

Financials

iShrs MSCI Taiwan ETF

4.6

-0.9

n/a

20/10/2009

Index ETF

S. Korea

Info tech

iShares MSCI Brazil ETF

Brazil

Energy

iShrs MSCI Emer Mrk Idx ETF

A reasonable choice, but investors seem to be gravitating these days to Vanguards lower-cost VEE.

First Trust AlphaDEX Emerging

FDE

5.9

0.65*

n/a

19.57

3.2

8

MTHLY

China

Telecom

SouFun Holdings

n/a

n/a

n/a

15/05/2013

Market Dividend ETF (CAD-Hedged)

Brazil

Info tech

E-House China

India

Financials

Tal Education

People just aren't buying this recently introduced ETF, which tracks an index of dividend-paying emerging market stocks that meet various criteria for liquidity, size and growth. Days and days go by without a single share changing hands.

Horizons Active Emerging

HAJ

5.0

0.89

0.18

11.22

2.8

406

MTHLY

China

Telecom

SouFun Holdings

8.6

n/a

n/a

10/10/2012

Markets Dividend ETF

Brazil

Info tech

Fomento Economico

Mexico

Cons. Staples

Siliconwear Precision

This largely ignored ETF is actively managed and thus uses a stock-picking team rather than following an index. Costs are higher as a result, but the very limited track record shows well against index-tracking emerging market ETFs.

Horizons Active Global

HAZ

95.9

0.94

0.06

14.88

2.6

5,351

MTHLY

U.S.

Financials

SK Telecom

25.5

11.7

n/a

21/07/2010

Dividend ETF

U.K.

Cons. Staples

Reynolds American

Canada

Energy

JPMorgan Chase

An actively managed ETF with almost two-thirds of the portfolio in the U.S. market, and another 6 per cent is in Canada. So not ideal for those who want international exposure.

iShares MSCI EAFE Index Fund

XIN

1,099.0

0.5

0.01

22.12

2.1

111,838

SEMI-

U.K.

Financials

Nestlé

25.1

8.8

9.7

06/09/2001

(CAD-Hedged)

ANN.

Japan

Cons. Disc.

HSBC Holdings

France

Industrials

Roche Holdings

Canada's oldest, biggest and most heavily traded ETF choice for investing outside North America. There's a cheaper, unhedged iShares alternative to this fund (XEF) and a low-volatility version (XMI) that smooths the ups and downs of the world index.

iShares MSCI Emerging Markets

XEM

272.6

0.79

0.02

24.79

1.8

13,243

SEMI-

China

Financials

Samsung

2.3

-0.6

n/a

18/06/2009

Index Fund

ANN.

S. Korea

Info tech

Taiwan Semicond.

Taiwan

Energy

Tencent Holdings

There's heavy duty fee competition in the ETF world these days, but the MER for this expensive fund doesn't reflect it. For a less wild ride in emerging markets, consider the low volatility version of this fund (XMM).

iShares Emerging Markets

CWO

55.2

0.69

0.09

28.96

2.6

6,233

QTRLY

China

Financials

iShrs MSCI Taiwan ETF

-0.6

-4.1

n/a

07/04/2009

Fundamental Index ETF

Brazil

Oil & gas

iShrs India Nifty 50 ETF

Taiwan

Telecom

Gazprom

Uses an indexing process where stocks are weighted using factors like revenues, dividends, book value and cash flow instead of market capitalization. This approach has worked well in the Canadian and U.S. markets, but not so much here.

iShares MSCI World

XWD

176.4

0.47

0

33.31

1.6

15,665

SEMI-

U.S.

Financials

iShrs Core S&P 500 ETF

33.9

13.6

n/a

18/06/2009

Index Fund

ANN.

Japan

Info tech

iShrs MSCI Core EAFE ETF

U.K.

Cons. Discr.

iShrs MSCI Canada ETF

Add a Canadian equity and bond ETF to XWD and you've got a nicely diversified portfolio with just three funds. Note: There's a low-volatility version of this ETF that trades under the ticker XMW.

iShares International

CIE

218.4

0.72

0.04

17.17

1.8

15,921

QTRLY

Japan

Financials

Toyota

32.5

8.9

8.3

14/02/2007

Fundamental Index Fund

Canada

Industrials

Nestlé

France

Cons. goods

Mitsubishi

Another fundamental index fund, which means costs on the high side. Returns have been above and below the EAFE index in recent years.

iShares Global Monthly

CYH

118.3

0.68

0

16.97

3.4

11,547

MTHLY

U.S.

Utilities

Lockheed Martin

13.8

5.6

14

15/01/2008

Dividend Index ETF

Australia

Financials

Chevron

Taiwan

Industrials

Philip Morris

Tracks the Dow Jones Global Select Dividend Composite Index CAD-Hedged, which seeks out better quality dividend stocks from the both developed and emerging markets. Canadian and U.S. stocks account for close to half the holdings.

RBC Quant EAFE Dividend

RID

3.0

0.49

n/a

20.28

n/a

n/a

MTHLY

U.K.

Financials

HSBC Holdings

n/a

n/a

n/a

15/01/2014

Leaders ETF (CAD-unhedged)

Australia

Industrials

Royal Dutch Shell

Sweden

Energy

BASF

A new international dividend ETF that uses a "rules-based" screening approach emphasizing strong balance sheets and sustainable, growable dividends. After underwhelming the ETF market with its previous offerings, RBC will want a good showing from this and other funds in the new Quant series.

Vanguard FTSE Devel. ex N. Amer.

VEF

227.2

0.43

0

34.12

2

15,005

QTRLY

Japan

Financials

Nestlé

26.4

n/a

n/a

30/11/2011

Index ETF (CAD-hedged)

U.K.

Cons. goods

Royal Dutch Shell

France

Industrials

HSBC Holdings

Vanguard has chosen to go with a FTSE index instead of the standard MSCI EAFE index, resulting in lower costs that in the future may be passed on to investors. A relatively new, unhedged version (VDU) is also available.

Vanguard FTSE Emerging

VEE

163.8

0.54

0

26.23

2

19,627

QTRLY

China

Financials

Taiwan Semicond.

0.9

n/a

n/a

30/11/2011

Markets Index ETF

Taiwan

Oil & gas

Tencent Holdings

Brazil

Cons. goods

Petroleo Brasileiro

The low-cost leader in TSX-listed emerging markets ETFs has been a hit with investors.

Note: *management fee only; shown for newer funds that do not yet post a full MER (management fees are a component of MER). Source: ETF company websites, globeinvestor.com